Wednesday, 6 May 2015

5 Tips to Follow While Investing in Public Provident Fund / PPF

Posted by MyInvestmentsPub
As many of you know that Public provident fund (PPF) is among the most popular and safest investment options for long-term savings. Deposits made under PPF also qualify for tax benefits. PPF or Public Provident Fund is a scheme operated by the Government of India to help Indians plan for their retirement and future. So in simple terms PPF is a collective fund operated by the Indian Government for the general Indian public to prepare for their future. I would like to discuss about some tips that you must know on PPF Investment to maximize the benefits out of PPF in this article.

About PPF Investments:

  1. Any Resident Indian Individual can open Public Provident Fund / PPF account in near by Post offices or in some authorized branches of Banks (SBI, ICICI Bank)
  2.  Minimum Investment of Rs 500 to Maximum Rs 1,50,000 can be deposited in a financial year.
  3. The total tenure of PPF account is 15 financial years. On completion of 15 years, you can extend your PPF account in a block of 5 years.
  4. If you forget to invest at least Rs 500 in any financial year, your account is considered de-activated. In order to re-activate your account, you need to pay a fine of Rs 50 for each year that you have not made any subscription, and also make a minimum subscription of Rs 500 for each year that you have missed.
  5. A resident who becomes an NRI after opening the account can continue to invest on non-repatriation basis ie., they cannot take PPF money outside India.
  6. The current year interest rate of PPF is 8.7%. This will be changed annually. 
  7. Nomination facility is available.

Benefits from PPF Investments:

  1. Investments under PPF is 100% risk-free investments.
  2. PPF Investments are deductible under section 80C and the maximum permissible limit is Rs 1,50,000.
  3. Invest as low as Rs 500 per year which is affordable to many.
  4. The interest earned from PPF is completely exempt from tax. This is one of the major benefit from PPF.
  5. On maturity, the corpus from PPF is completely exempt from tax.
  6. The PPF account cannot be attached to any claim in case of debt or liability. This is one of the unique feature of PPF.

Limitations with PPF Investments:

  1. The major limitation with PPF investments is its lock-in period. The duration of the investment is 15 years. You cannot withdraw amount with in 15 years. However, on some conditions, you can withdraw or take loan partially.
  2. When you consider the inflation rate, the PPF interest rate is very less and cannot get Inflation-beat returns.
  3. Hindu Undivided Families (HUF's) and NRIs cannot invest into PPF.

Things to Know About the Loan Facility

  1. A PPF subscriber can avail loan between the third and sixth financial year of opening the account. 
  2. The amount is restricted to 25 per cent of the balance at the end of the second year preceding the year in which the loan is applied for. For example, if the loan was applied in 2015-16, 25 per cent of the account balance at the end of 2013-14 can be taken as loan.
  3. Withdrawals can be allowed from seventh year of opening the PPF account. No loan can be taken from the seventh year of opening the PPF account.
  4. The loan (principal) is repayable either in lump sum or in installments within 36 months.
  5. The interest portion of the loan has to be repaid by two monthly installments after the principal is paid off.
  6. Interest is charged at 2 per cent more than a subscriber receives on the PPF.
  7. Meanwhile, the balance amount in the PPF account accumulates interest.
  8. If the loan is not repaid within 36 months, interest at 6 per cent more than what subscribers receive on their deposits is charged.
  9. The interest on outstanding loan which has not been paid before 36 months or paid partly will be debited from the subscriber's account at the end of each financial year.
  10. A second loan can be taken on full payment of first loan.

5 Tips to Follow While Investing in PPF:

  1. Always deposit the amount on or before 5th of any Month. If you deposit every month after 5th, your deposit will not yield interest for that month. 
  2. It is better to open PPF account with the same bank where you have savings account. It is easy to make automatic transfers from your savings account into PPF account.
  3. Do not withdraw amount from PPF until you have terrible cash cruch situation. 
  4. PPF account can be extended in blocks of 5 years after 15 years. It is always advisable to extend with further deposits. You can invest as low as Rs 500 in a FY. This gives you the flexibility to invest a bigger amount later.
  5. Always advisable to put a nominee for your PPF account.


PPF Investment is undoubtedly a safe and risk-free investment. Though it has few limitations, one has to keep PPF investment in his / her portfolio for its unique features and benefits. To diversify the investment portfolio, PPF is the top most option to choose.
Happy Investing!


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